The free rider problem exists when people enjoy the benefits

Principles of Taxation

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canada goose clearance sale How should taxes be distributed? A shift from an income tax to a consumption tax and other proposals to revamp the federal tax codes are currently in the news, and April 15 is drawing near. So it is a good time to review some of the principles of distributive equity supporting various forms of taxation. canada goose canada goose clothing uk clearance sale

The first is absolute equity. Under this principle of fairness, everyone pays an equal share, which is determined by dividing the value of government expenditures by the number of people.

The second equity principle is ability to pay. This principle is based on the idea that the pain of paying taxes, which is distinct from the dollar amount, should be the same for everyone.

canadian goose jacket The most popular variant of the ability to pay principle is called the equal marginal sacrifice principle. It is often used to justify progressive taxation. The idea is to examine what a person gives up when the last dollar canada goose outlet las vegas of taxes is paid. To pay the last $50 in taxes, a low income person might have to give up something essential, such as a pair of shoes. A high income person might give up a luxury of little practical value or necessity. Accordingly, taxes should be increased on the high income person and reduced on the low income person until both sacrifice equally when the last dollar of taxes is paid. canadian goose jacket

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In practice, the voluntary approach is restricted in its application because many government goods cannot be privatized due to the free rider problem. The free rider problem exists when people enjoy the benefits of government provided goods independent of whether they pay canada goose outlet hong kong for them.

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